The British government began to subsidise tramp shipping and, under the Shipping (Assistance) Act of 1935, a 'scrap and build' scheme was introduced in 1936. This granted a subsidy to companies that scrapped more than twice the tonnage that they built - stimulating demand by removing obsolescent capacity.
Although the world shipping industry was in recovery by 1937, British production of merchant shipping failed to reach pre-depression levels. This was partly due to the decline in Britain's share of world trade, as some foreign governments (such as Germany and Japan) followed policies of subsidy and protection.
The industry responded to the demand of the Second World War with a greatly expanded naval building programme. There was also an increasing demand for repairs. The merchant shipbuilding industry was taken over by the Ministry of Supply in 1939 and concentrated on the production of specialised shipping to meet war needs. Nevertheless, total tonnage of the British mercantile fleet shrank during the war because of losses.
After the Second World War, the British shipbuilding industry concentrated on replacing lost tonnage, reconditioning ships and building ships for foreign owners who had sustained losses during the war. British shipbuilding regained its prominent position in the sector, building 45 per cent of all shipping under construction in 1945.
Major competitors Germany and Japan returned to the market, but the effects of this were offset by the outbreak of the Korean War. British shipbuilding remained buoyant during most of the 1950s, although its percentage share of the sector declined. The fact that the industry was unable to expand to meet demand indicated structural and organisational problems, including low levels of investment and poor industrial relations.
The rapid growth of containerisation, enabling the mechanisation of freight handling, took place between 1958 and the mid-1960s. In some dockyards workers resisted this change, and low levels of investment limited the adoption of the new technology. The government was becoming increasingly concerned about the future of the British shipping industry. It established the Shipping Advisory Panel in 1962 and a number of official studies on the industry and related matters followed. In 1962, the Rochdale Committee recommended innovations and improvements to British ports and, during the 1960s, the government subsidised the industry. From May 1963, the Shipbuilding Credit Scheme made cheap mortgages available to those who ordered vessels from British yards. The Scheme was crucial to the survival of the industry during the mid-1960s.